Oil surges after OPEC+ surprising output cut, gold shines

Oil surges after OPEC cuts

Oil prices surged after OPEC+ surprised energy markets with a production cut announcement of more than 1 million barrels a day. ​ This oil production cut follows the group’s 2 million bpd reduction of output made in October. ​ OPEC was signaling that they could keep production steady but it is clear that they are not confident with the demand outlook. ​

It is also important to appreciate the timing of the announcement. ​ OPEC didn’t wait for Monday’s JMMC meeting, but opted to announce right after they had their online discussion early on Sunday, before the market opened. ​ It is not just about what the Saudis do, but how they do it. ​ Clearly, the Saudis were not comfortable with how low oil prices were going and wanted to send a message here. ​ Energy analysts are going to have to reset any downbeat macro-driven forecast as oil is clearly making a run back towards $100 oil. ​ ​

Given compliance with OPEC production goals have been very poor, it seems these cuts will have a lasting impact as the top three oil producers are taking the lion’s share. Saudi Arabia and Russia will both cut production by 500K bpd and Iraq by 211K bpd. ​

Gold gains ground

Gold is rising after OPEC+ delivered another shock to the global financial outlook. ​ It is the third week in a row we are starting the trading week with a major development. First, it was Silicon Valley Bank, then Credit Suisse, and now OPEC+. ​ Higher oil prices will prove to be troubling for central bankers as they try to navigate the end of their respective tightening cycles. ​

Gold didn’t rally initially, but it seems traders are realizing that in the end nothing good can happen if oil prices continue to rise. ​ Demand for safe-havens appears to be elevated and that should be good news for gold. ​

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023.

His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.